FREE TRADER'S ASSESSMENT

Waiting for Bernanke

An article in the Washington Post suggesting that Fed Chair Bernanke is unlikely to promote any significant new initiatives in his Jackson Hole speech on Friday is generating some comment in the FX market, and negative vibes in equities.

The durable goods report for July, which was just released, came in much higher than expectations at +4%, and +0.7% ex-transportation. Some elements of the report were less robust, but on balance it should be encouraging for longs.

The French bank SocGen, which has a sizable hedge fund practice, estimates that hedge funds are net short 71,000 S&P futures contracts.Â Many of those are no doubt hedges against other longs, but it does suggest that if there is is a positive catalyst, short covering alone could give stocksÂ a nice pop higher.

In FX, the Japanese set up a $100 billion fund that’s basically designed to compensate for the effects of a very strong Yen. Participants in the FX market are assuming that this means that they’ve given up on the idea of using intervention to try to force the Yen lower. Players are looking for a quick retest of 75.95, as long as someone else goes first. I would expect a lot of piling on should that level be broken.

The other notable piece of business going through in FX this morning wasÂ the work of aÂ couple of large and determined buyers of EUR/GBP, one an institution doing some portfolio rebalancing ahead of month end, the other a corporate name. The push higher in EUR/GBP propelled GBP/USD lower. The old joke about GBP is that it’s “an escalator up, an elevator down”, and the truth of the saying was borne out this morning, as the move was quick and brutal.

Spot Gold has recovered some ground this morning, as the overall tone is definitely more cautious than yesterday’s “Risk on, Pal!”Â I don’t think that there’s enough confidence to keep those who got long yesterday, and remained that way overnight,Â holding onÂ if their profits start to erode. Best of luck today.